ECB finds more bad loans
One of the major issues to be faced by the ECB once the whole QE and monetary policy saga unwinds is the question of the bad loans in the Eurozone banks’ balance sheets. Almost a quarter of the one trillion euros in bad loan provisions are to be found in the accounts of the German and French banks.
So, what difference does yesterday’s announcement of a further ten billion euros in bad loans, which came to light during an audit and have been described by the ECB as a “miscalculation”, make?
It is such word choices that highlight the issue of institutions being run a by bureaucracy with little individual accountability. This is the one area where Sr. Draghi can be said to be found wanting. It is unlikely to be allowed to fester much more, particularly if Jens Weidmann turns out to be Draghi’s replacement, despite his having to deal with German Banks issues.
The Euro continues to correct but remains within its medium term 1.2260/1.2520 range.
Under the current Governing Council, there is no rush to start to tighten policy and the possibility remains that the Asset Purchase Scheme could be extended, particularly if inflation falls any further.
GDP stronger but not strong enough
An upwards revision in Q4 ‘17 GDP was not sufficient to change the market’s or more importantly, the Fed’s three hike strategy for 2018. Growth in Q4 was revised up to 2.9%. This was the final release, so it is now official that the U.S. economy grew at slightly slower rate in Q4 than in Q3.
The dollar’s reaction was positive if muted as the market starts to wind down towards the long Easter weekend.
The significance of the meeting in Beijing between Chinese President Xi Jinping and North Korean leader Kim Jong-un could herald a new era in the Korean peninsula coming so soon after Kim’s offer to meet President Trump. Risk appetite will be encouraged by any new developments. Chinese media was so taken by the fashion sense of the North Korean First lady that social media posts were removed which commented on how she outshone Xi’s wife!
The dollar index is trading in ever narrower ranges with 88.20 being the long-term base but 89.00 providing some support. It is rumoured that the U.S. Treasury is looking into creating a more representative basket of currencies since the current six currencies no longer represent America’s most significant trading partners.
Sterling likely to see some volatility.
It could be another highly significant Easter for Ireland should the UK Government announce, as has been rumoured, a deal that will solve the log jam that has developed over the border between North and South. It was alleged at the time the transition agreement was announced that there had been a deal agreed but so far there has been no official confirmation.
That is most likely to be because Theresa May has been in talks with the Unionist MP’s, who hold the fate of the Government in their hands, who will have no part of any deal that “hives off” the province of Northern Ireland and moves the border into the sea. Mrs May was strident in her comments that the UK will remain as one following Brexit and as such it will be interesting to see how much “horse trading” must take place to get a deal confirmed,
Also, today, the Q4 GDP data is released with the risk very much to the downside. Anything less than 1.2% growth between October and December will see the pound under more pressure and a break of 1.4060 versus the dollar will confirm a medium-term top at 1.4250 and exert further downward pressure.
